SHOULD I BE USING A SELF MANAGED SUPERANNUATION FUND?

There has been a lot of discussion recently, particularly in the media, about the benefits of self managed superannuation funds (SMSFs). So we thought we would take the opportunity to walk you through what that means, and what are the risks associated with this.

At a superficial level, an SMSF might sound attractive. After all, what’s not to like about doing your own investing?

But be aware. Think carefully before you go there. SMSFs aren’t for everyone. Especially in the early stages of your career when you’re unlikely to have a large enough accumulated balance in your super account to make a SMSF a viable and worthwhile option to consider.

Superannuation Freedom of Choice

If you joined the ADF for the first time after 30 June 2016, it’s a fact ,you’re no longer automatically required to join the superannuation fund nominated by Defence. Instead, you have the freedom of choice to nominate any “complying superannuation fund” and Defence will contribute its employer contribution of 16.4% per annum into that fund (which is more generous than the mandated 12% superannuation guarantee most employees get).

Members should be advised about this freedom to choose a fund during your onboarding process with Defence Recruiting. Some helpful tips can be found in our article on how to go about choosing a suitable fund.

Choosing a Self Managed Superannuation Fund

One of the choices members can make is a SMSF. Whether that choice is agood idea depends on a range of factors, including your interest in spending time managing your own fund and whether you’ve got enough in your current super fund to make it worthwhile transferring that amount into a SMSF and then taking on the considerable responsibility that follows.

Plenty of promoters will encourage you to do it, but we strongly recommend thinking twice before you do.

SMSF Statistics

The enthusiasm with which Australians have embraced SMSFs is remarkable. According to a recent Australian Taxation Office (ATO) SMSF Quarterly Statistical Report, there were nearly 672,805 SMSFs as at March 2026 containing about a quarter ($1.06 trillion) of all Australian superannuation fund assets. SMSFs have an average balance of over $1.63 million, and a combined membership of nearly 1.3 million people, 85% of whom are over 45 years of age.

What’s driving this growth?

Could it be generous tax breaks? That’s unlikely because the same tax breaks apply to all superannuation funds, not just to SMSFs.

Could it be that the cost of running a SMSF is lower than institutional alternatives? That’s also unlikely because the costs of running such a SMSF can be considerably higher, after factoring in administration, management, accounting, compliance and auditing costs from a wide range of service providers, not to mention the sometimes stressful allocation of time by you and your family who are members of the SMSF (think thousands of dollars, not hundreds, before even factoring your own time into the calculation).

The lure of direct control (or is it an illusion?)

More likely, the growth is caused by the desire on the part of members of these funds to have direct control over their investments or perhaps distrust of the financial services industry? Throughout the four decades since the inception of this form of superannuation, Australians have rarely needed convincing about the merits of establishing a SMSF.

By the time they consult an accountant or financial adviser, many people have already persuaded themselves that they can achieve a better rate of return than professional investment managers; and even if they can’t, at least the money will be kept out of the hands of the banks and funds managers.

In fact, some clients want to keep control at almost any cost, which is ironic when the reality is that a large proportion of funds invested in SMSFs is held in low interest earning term deposits controlled by the very institutions that they love to hate.

The SMSF sector

The SMSF phenomenon has given birth to an industry within an industry, representing the so-called “SMSF sector”. This inner industry contains articulate and well-funded associations of service providers, often promoting the merits of SMSFs over other forms of superannuation.

We have seen the rise of “SMSF educators” whose principal purpose appears to be to convince members of the public to use SMSFs to gear (borrow) into investment properties on the basis that real estate is always a winner (please note that the law may soon change to make this more difficult, if not impossible, so watch this space….).

The ageing cohort of trustees/members

A significant challenge to the viability of the SMSF sector is the ageing cohort of SMSF trustees and their ability and enthusiasm to manage and control their superannuation affairs. In the not too distant future, there will be tens of thousands of SMSF trustees in their 70s, 80s and beyond. This presents risks at many levels.

There is the regulatory risk that trustees will fall short in their compliance obligations. There’s also the risk of poor investment decisions caused by an aging population and diminished cognitive abilities. It may also be prudent to seek advice about having formal documentation in place such as power of attorney with someone you trust, as sadly, there is a risk of elder abuse by professional advisers and relatives seeking access to large sums of money that are typically held in SMSFs. Unfortunately, These risks, particularly the latter, are not just theoretical.

Think carefully before acting

The message here for ADF members and families is to think carefully before making a decision to establish a SMSF. The first question to answer is whether you have enough money in the fund to make it a viable proposition. Many experts are adamant that you should start with at least $500,000 in the fund while others suggest an SMSF is viable with much less, say $200,000. The point is that there is a figure below which it is unlikely to be cost effective or prudent to establish an SMSF.

Answering that question requires an analysis of investment returns and costs. A qualified accountant or licensed financial adviser may be able to assist you with this (an additional cost to consider).

Do you really want to spend the time required?

Ask yourself if you have the time or capacity to be so deeply involved in the operation of a superannuation fund. Or would you prefer to appoint someone else (such as a publicly available superfund) to undertake those tasks? We’re not suggesting what you should or should not do, but the decision to establish a SMSF is not to be taken lightly.

The decision to establish a SMSF should be made for the right reasons, including your acknowledgement that a properly run SMSF requires allocation of a considerable amount of your time and a willingness to accept personal responsibility, compliance and investment risks.

The consequences of poor practices

If you’re not yet convinced about the need to think twice before setting up an SMSF, here are some final words of warning…..

SMSFs are being promoted widely as a way to access your retirement savings prior to retirement; as a way to invest into direct property (often using borrowed funds), including your own home, a holiday home or investment property; and as a way to invest in so-called “alternative assets” that would not be considered by a conventional superannuation funds (such as operating a business, trading in livestock, dealing in classic cars, artworks and other collectables).

The arrangements are many and varied, but the bottom line is that if you are inclined to consider doing any of these things, understand that many of them are scams, many are illegal and others are so risky as to likely breach what’s called the “sole purpose test” in the laws of superannuation (leading to the withdrawal of tax concessions and other serious penalties).

Seek professional advice

Our key message here is to act with extreme caution and to seek professional advice before going ahead. Our website contains educational material about how to go about getting trusted advice.

ATO website

We also recommend the Australian Taxation Office website as an independent source of practical and technical information about SMSFs.

Like to know more?

Our website includes a wealth of general educational material on superannuation, including articles referencing SMSFs on topics including superannuation scams and the family home and lead generation calls/emails.

Our FAQs

Here’s our website page where you’ll find a list of the most common questions we’re asked about superannuation in the ADF.

Our Superannuation Quiz

Superannuation can be a complicated topic, and it’s something about which we frequently receive questions from ADF members. Test your knowledge on Superannuation with our 10 questions quiz to guide you through many of the most important issues and considerations on superannuation.